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Module 7 of 11 12 min

Insurance Basics

Health, auto, and renters insurance; premiums and deductibles.

Course lessons

Step 1

The lesson

Insurance lets you trade a small, predictable cost for protection against a large, unpredictable one.

  • Premium: what you pay regularly to have the insurance.
  • Deductible: what you pay yourself before insurance starts paying.
  • Copay: a flat fee for a service, like $30 for a doctor visit.
  • Coinsurance: your share of costs after the deductible, like 20%.
  • Out-of-pocket maximum: the most you'll pay in a year for covered care; after that, insurance pays 100%.

Lower premiums usually mean higher deductibles, and vice versa. The right balance depends on how much you could pay if something happened.

Step 2

See it

How a medical bill gets split

For a $5,000 covered bill with a $1,000 deductible and 20% coinsurance: you pay the first $1,000, then 20% of the remaining $4,000, for a total of $1,800. Insurance pays $3,200. Your yearly out-of-pocket maximum caps what you can owe.

$5,000 bill

Covered care

You pay the deductible

$1,000

Then 20% coinsurance

20% of $4,000 = $800

You pay $1,800

Insurance pays $3,200

Step 3

Real-world example

Choosing a plan

Devon, 24, compares two hypothetical health plans from his employer:

  • Plan A: $80/month premium, $3,000 deductible.
  • Plan B: $180/month premium, $500 deductible.

Plan A costs $1,200 less per year in premiums. If Devon stays healthy, it's cheaper. But if he needs major care, he'd pay up to $2,500 more before coverage kicks in. He picks Plan A and keeps that $2,500 gap in his emergency fund.

Step 4

Knowledge check

Answer each question, then check your answer to see the explanation. Retake it as many times as you like.

Question 1 of 3

ScenarioYou have a $1,000 deductible and 20% coinsurance. You get a $5,000 covered bill (and haven't hit your out-of-pocket maximum).How much do you pay?

Choose an answer.

Step 5

Summary

Insurance trades predictable premiums for protection against big costs. Know premiums, deductibles, copays, coinsurance, and out-of-pocket maximums. Lower premiums usually mean higher deductibles. You can generally stay on a parent's health plan until 26, drivers need liability insurance, and renters insurance protects your belongings.

Step 6

What you should remember

  • Premium = regular cost. Deductible = you pay first.
  • Coinsurance = your share after the deductible.
  • Out-of-pocket max caps your yearly costs.
  • Parent's health plan until 26 (generally).
  • Keep your deductible in your emergency fund.

Finished the lesson?

Mark it complete to track your progress.